Housing affordability steady despite supply chain issues

Falling mortgage rates offset jump in home prices in Q4

Housing affordability steady despite supply chain issues

Despite regulatory and supply issues, housing affordability held steady in the fourth quarter of 2020 thanks to historically low-interest rates.

The National Association of Home Builders (NAHB)/Wells Fargo Housing Opportunity Index (HOI) showed that 58.3% of new and existing homes sold between the start of October and end of December were affordable to families earning an adjusted US median income of $72,900. This figure remained unchanged from Q3 2020 and was the lowest reading since Q4 2018.

NAHB chairman Chuck Fowke said that the record-low rates helped offset the spike in home prices to keep affordability rates stable.

“While historically low mortgage rates are helping on the affordability front, there was a significant jump in year-over-year home pricing from 2019 to 2020, as inventory remained lean due to supply chain issues and the COVID-19 pandemic,” Fowke said. “Moreover, lumber prices remain extremely high, and builders anticipate that regulatory costs are likely to rise, which will put even more upward pressure on home prices.”

The national median home price rocketed to an all-time high of $320,000 in the fourth quarter, while average mortgage rates plunged to a record low of 2.85% quarter over quarter, according to the HOI.

“Looking forward, interest rates are likely to rise as the pace of vaccines increase, and economic activity climbs back to more normal levels,” said NAHB Chief Economist Robert Dietz.

California remained the home of the five least-affordable housing markets in the country. Los Angeles-Long Beach-Glendale, Calif. was at the bottom of the list, only 9.1% of the homes sold during Q4 were affordable to families earning the area’s median income of $71,800. Other California markets at the lowest end of the affordability scale included San Francisco-Redwood City-South San Francisco; Anaheim-Santa Ana-Irvine; San Diego-Carlsbad; and San Jose-Sunnyvale-Santa Clara.

Meanwhile, Lansing-East Lansing, Mich., was the nation’s most affordable major housing market. Around 89.9% of all new and existing homes sold in the metro were affordable to families earning the area’s median income of $75,000. Rounding out the top five affordable major housing markets in respective order were Harrisburg-Carlisle, Pa.; Pittsburgh, Pa.; Scranton-Wilkes-Barre-Hazleton, Pa.; and St. Louis, Mo.

“One trend that will help counterbalance growing affordability concerns is the suburban shift in home sales and construction to smaller markets. An increase in telecommuting is providing more ‘market power’ to prospective buyers, allowing them to live in lower cost, lower density markets,” Dietz said.